Good afternoon, and welcome to the Nabors Industries' Fourth Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded today. I would now like to turn the conference over to the William Conroy, Vice President of Corporate Development and Investor Relations. Please go ahead, sir.

Good afternoon everyone. Thank you for joining Nabors' fourth quarter 2022 earnings conference call. Today, we will follow our customary format with Tony Petrello, our Chairman, President, and Chief Executive Officer; and William Restrepo, our Chief Financial Officer, providing their perspectives on the quarter’s results along with insights into our markets and how we expect Nabors to perform in these markets. In support of these remarks, a slide deck is available both as a download within the webcast and in the Investor Relations section of nabors.com. Instructions for the replay of this call are posted on the website as well. With us today, in addition to Tony, William and me, are other members of the senior management team. Since much of our commentary today will include forward expectations, they may constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Such forward-looking statements are subject to certain risks and uncertainties as disclosed by Nabors from time to time in our filings with the Securities and Exchange Commission. As a result of these factors, our actual results may vary materially from those indicated or implied by such forward-looking statements. Also, during the call, we may discuss certain non-GAAP financial measures. Such as net debt, adjusted operating income, adjusted EBITDA, and adjusted free cash flow. All references to EBITDA made by either Tony or William during their presentations, whether qualified by the word adjusted or otherwise, mean adjusted EBITDA as that term is defined on our website and in our earnings release. Likewise, unless the context clearly indicates otherwise, references to cash flow mean adjusted free cash flow as that non-GAAP measure is defined in our earnings release. We have posted to the Investor Relations section of our website a reconciliation of these non-GAAP financial measures to the most recently comparable GAAP measures. With that, I will turn the call over to Tony to begin.

Good afternoon. Thank you for joining us as we present our results. We made several notable accomplishments during 2022, and the year culminated on a high note with an impressive fourth quarter performance. Each of the operating segments in our portfolio again performed well. Adjusted EBITDA in the fourth quarter totaled $230 million. This marks the third consecutive quarter of sequential EBITDA growth above 20%. Consolidated revenue increased 10% sequentially. Our global average rig count for the fourth quarter increased by 3.4 rigs. This growth was driven by increases in both US and International markets. Drilling Solutions EBITDA accelerated and exceeded $30 million. Combined, our Advanced Drilling Solutions and Rig Technologies segments accounted for over 16% of total EBITDA. This contribution is more than double their share back in 2020. In the fourth quarter, we again reduced net debt. Our net debt stands below $2.1 billion. I am pleased to report we again made progress on our five keys to excellence. These critical objectives comprising the investment thesis for Nabors include maintaining our leading performance in technology in the US market, expanding and enhancing our international business, advancing technology and innovation with demonstrated results, improving our capital structure, and finally, our commitment to sustainability and the energy transition. Let me update each of these, starting with our performance in the US. We averaged 95 rigs in the fourth quarter, up three from the third. The early margins in the Lower 48 stepped up very materially in the quarter. Our average daily margin grew by more than 30% to $14,600. When including the contribution from NDS, our margin is even higher. I'll discuss this in a few moments. As both the industry and Nabors rig counts rebounded in recent years, we purposely kept our contract duration short. This strategy has enabled…

Thank you, Tony. Fourth quarter results were significantly better than we anticipated. Both US and International segments experienced sustained pricing momentum and steady increases in rig count. NDS continued on its growth path with improving results across its business lines and Rig Tech had its best quarter in a long time with signs of strength across its portfolio of offerings. Although the first quarter is a bit shorter than the fourth, we continue to ride favorable trends and expect to deliver meaningful sequential EBITDA growth this quarter. Average pricing for our US fleet continues to expand. International rig count and pricing also continues to improve, and we expect NDS to provide further momentum to our total results in the first quarter. For the full year, 2022 revenue from operations was $2.7 billion. This compares to $2 billion for 2021, a 32%improvement year-over-year. All of our segments grew significantly during 2022, but Lower 48 drilling and NDS globally led the way with revenue increases of 78% and 41%, respectively. International Drilling 2022 revenue increased by 15%. We experienced an acceleration towards the end of last year and expect 2023 to deliver a similar year-on-year growth as our international markets appear to be picking up steam. For the fourth quarter of 2022, revenue from operations was $760 million compared to$684 million in the third quarter, a 10% improvement. US Drilling revenue increased by 12% to $333 million. Lower 48 revenue grew by almost 16%, reflecting higher rig count and an increase in daily revenue of over $3,500 or 12%. Average daily revenue reached $32,700 up from $29,200 in the third quarter, and we expect it to continue to increase over the coming quarters. Over the past year, day rate increases have accelerated as compared to the increases of the prior year. In…

Thank you, William. I will now conclude my remarks this afternoon. First, let me summarize our fourth quarter and 2022 highlights. Quarterly adjusted EBITDA increased sequentially by 21% and exceeded $700 million for the full year. In the quarter, we once again generated free cash flow, while reducing net debt. Net debt at the end of the year stood below the $2.1 billion level. Our Lower 48 daily margins reached a quarterly record with annual for a double-digit increase in the first quarter. And NDS annualized EBITDA exceeded $120 million in the fourth quarter. Credit must go to the Nabors team for its outstanding performance in 2022. The team stepped up to overcome the challenges worked by the large number of rig activations and persistent supply chain issues. Their efforts enabled us to make significant progress on our key focus areas. Looking ahead, we expect to improve further in 2023. In the Lower 48, our pricing and the value we provide to clients are better aligned than they have been in many years. With our current contract portfolio, we expect to realize higher average rig rates and margins progressively through the year. In our international segment, the combination of growing markets and the pending new build deployments in SANAD should lead to even better financial performance. In NDS, we remain focused on increasing penetration on Nabors' rigs and in the third-party market. The international business in NDS is gaining momentum. This combination could drive further growth in this high-margin, high-return segment. For the first time in several years, we expect a material contribution from Rig Technologies. The increase in industry activity is leading to growth in the aftermarket and we have high expectations for the energy transition initiatives. Building on our performance in 2022, we expect material improvements in our free cash flow and in our progress to reduce net debt. Our priority to delever has been successful so far, and there's more to come. I am proud of our accomplishments in 2022. I'm looking forward to reporting even better performance for 2023. That concludes our remarks on the fourth quarter and 2022. Thank you for your time and attention. With that, we will take your questions.

We will now begin the question-and-answer session. [Operator Instructions] And our first question here will come from Derek Podhaizer from Barclays. Please go ahead.

Hey, good afternoon everyone. So, I wanted to expand on the gas markets first. I think that's where the biggest debate lies in the Lower 48. You talked about moving your rigs over to oil or based on some of your smaller customers dropping rigs with being able to be picked up by other larger customers. Can you maybe give us some color around how much lower the natural gas really have to get to see a meaningful drop in rigs? Just trying to understand the impact on both day rate and daily margins. What do we need to see, the draconian scenario, to see that day rate move down significantly because I think that's the big threat that's out there that investors are trying to assess? So, -- can you maybe expand a little bit more about how many rigs need to drop? What's your expectations? Do the rig players hold the line on pricing? I think it'd be helpful to get an understanding of the negative impact with gas markets.

Okay, that's a pretty amorphous question -- or a difficult question, I would say. The -- I think obviously below two, look, it would be a problem. But you've also got to bear in mind a bit -- the gassy markets are not all homogeneous, I would say. So, for example, East Texas, there is churn there, and the operators are pushing forward their plans. Where we had some plans for people taking rigs in the first quarter, they are pushing them out to the second half of year waiting to see what happens. But in gassy players like Northeast, where it is virtually all gas, there the market hasn't been as sensitive, and -- in part because of the cost structure and in part -- we projected Nabors in part because of the quality of our rig fleet is up there. So, it's not all homogeneous, I would say. In South Texas, there has been churn in South Texas, in part because I think as it rolled the condensate down there -- but again, I think right now, what we've been trying to do is move the rigs from those plays to the oily customers. We have had some pickup of rigs in West Texas this quarter, for example. In West Texas, there is some churn as well. Even with the fluctuation in oil price in West Texas, I would say that those fluctuations are more in connection with the private operators, the smaller guys who come on to the market quickly and also exit quickly. So, there has been some of that. But by and large, we've been able to deal with all that.

Okay, great. That's helpful. I just wanted to switch over to your repricing effect. You talked about repricing two-thirds of the fleet, obviously, a big pickup in the daily margins as expected for the first quarter. How much -- howling would it take to reprice your remaining third of your fleet when you talk about increasing day rates and daily margins through the year? Just give us some color on the cadence of where you expect this to go. And if everything was repriced what do we see on a daily rig revenue level? Is it in the high 30s, the low 40s? Just to give us an idea how we walk through the year and the power of repricing and a moderating rig activity would be helpful color?

Sure. Well, I think I think in terms of time frame, we're looking at it over the next two quarters, ideally, we can affect the repricing of a large substantial portion of the fleet. In terms of actually coming out with a specific number, the distance between the 33 number that you saw that we exited the average width and the above 40 number that we're at now and where we land on that, hopefully, it's closer to the higher end of the range rather than the middle of the range, but it's going to be a function of how fast we can move and what the market is like. So, beyond that, I don't want to be more specific.

Okay, appreciate the comments. I'll turn it over.

Our next question will come from Kurt Hallead with Benchmark. Please go ahead.

Hey good afternoon. How are you guys doing?

Hi Kurt.

How are you doing?

Good to see you back.

All right. Thank you. Good to be back. So, -- yes, a lot of business momentum for sure, behind you. A lot of tailwinds, that's awesome. So, maybe my question here to be focused a little bit more now on the international side of the business. We've got these Saudi rigs that are coming on here for this year. You also mentioned opportunities in other areas of the Middle East and Latin America. So, maybe give us some context as to what kind of increase in activity you could expect outside of the SANAD joint venture? And you talked about some inflection in pricing there. Maybe give us some context on what the pricing looks like international versus US?

Sure. Okay. Let me try to recap because it's a lot of ground to cover. Let me just reiterate Saudi Arabia so it's clear to everybody. The initial newbuild, the first one started in the third quarter, and then we had a second one in the fourth quarter. And then we said, we added an additional rig in -- late in the fourth quarter as well. And we're expecting another three of the newbuilds to go on the payroll during the first three quarters. So, that's where that stands. In addition, as we mentioned, it's another five awarded to bring the total awards to 10. But those five, -- being impactful for 2023. But away from Saudi Arabia, that's the interesting thing right now, I would say. I said, if you add up the Eastern Hemisphere and a bunch of countries -- four or five countries, we think we have about 37 tenders, mostly in MENA. And we have another four or five tenders in Argentina. And again, none of these numbers include--

Rigs, 50%--

Rigs. Yes. None of these numbers include the newbuilds in Saudi Arabia. And currently in the pipeline, in terms of committed incremental stuff, including what I just talked about, we have 5.5 rig years already -- we have visibility for that already for this year. So, I think it's a pretty full cadence of opportunity right now. In terms of margins, we said we're guiding the first quarter similar to the fourth quarter. But I think what's going to happen is all these incremental rigs are going to put us on the path -- they're accretive to existing day rates, existing margins. I think through the end of the year, it's going to put us on the path of a margin increase to $16,000, $17,000 by the end of 2023. So, I think there's just a lot of good stuff happening in international right now.

Not to mention Nabors Drilling Solutions, which is expanding really fast in the international markets. We have talked about it in prior quarters about the international expansion for NDS and we're actually starting to see that now.

Great color. Maybe one thought -- Yes. Sorry, Tony, go ahead.

I was just going to say, a follow-up on that, we have said, one of the things I'm really happy about, amongst those with NDS, 30% of their portfolio of revenue base now is coming from international. So, that reflects the fact that the push we're putting there as well to grow that part of the business. So, that's a deliberate part of our strategy.

Okay, great. And then maybe a follow-up for William. I know you -- there's a reference in the press release as well as your commentary that you're going to reduce net debt from $2.1 billion to around $1.7 billion. Obviously, that's the same amount of free cash flow you're going to generate. So, are you actually going to reduce debt or just reduce the net debt?

We're going to do both, Kurt. I think we obviously need to address 2023 and 2024 maturities and that's going to be done this year, of course, with the cash flow. We're also probably going to take care of the 2025 9%soon this year, and we can call those. And then we will use the rest of our cash flow also to start nicking away at the other 2025. So, debt is going to go down and net debt is going to go down as well.

Okay, great. Appreciate that color. Thanks guys.

Our next question will come from Keith MacKey with RBC Capital Markets. Please go ahead.

Hi, good morning and thanks for -- good afternoon and thanks for taking my questions. I just want to start on the Nabors Drilling Solutions. You mentioned the Nabors rigs, about 6.5 services per rig. Can you just talk a little bit more about the third-party rigs? What does the average rig look like in terms of is it an AC rig, an SCR rig, et cetera? And how many average services do you have on those rigs? And could you ultimately see that getting closer to that 6.5 number as well?

Okay. So, with respect to third-parties, let me just first start and say that, like I mentioned, the good thing about NDS is it's becoming a balanced portfolio. Like I said, it's 70/30 split between USA and International. And in the US, I'd say 25% of our revenues coming from third-party rigs right now. So, -- and when you drive down, more than six are on Nabors rigs. In terms of third-party, I'll let Subodh answer that. Subodh?

Thank you, Tony. So, the approach that we have is that we have more than 100 rigs that are running some element of NDS software, which is primarily focused on drilling optimization. And we have in mid to high teens third-party rigs that are running a full suite of our automation platform, SmartROS, which enables multiple smart products and any rig floor automation that we will come up with during 2023. So our portfolio in the US and international continues to grow based on both individual services that we can deploy in third-party rigs and the complete automation platform that can be deployed primarily on AC rigs.

Yes. And what we're seeing, Keith, is that even for those people who have the AC rigs, their AC configurations aren't necessarily robust enough to handle the suite of products. And so we're in discussion with a number of contractors who are actually converting over to our SmartROS system, which gives them the robustness that they need to actually run this stuff. So, we have a conversion methodology that's very cost effective compared to anybody else's alternative out there in the marketplace and help them convert over to a platform that enables them to grow that part of their business. And here, I would say is -- the reason why we're doing this is Nabors recognizes with the number of rigs we have, we can't service the whole world here, obviously. So, that's why we're committed to making this technology available to on third-party rigs. And we're actually joining up with contractors on a cooperative basis not on a compensation base, even though we're -- we compete in some areas, operators, a lot of contractors recognize that since we've been down the path, why reinvent the wheel. And since we're willing to let them access the good stuff, that -- it's like a win-win proposition. So, that's the concept that we've accelerated on. That's what we're going to press forward both here in the US and internationally. And I think the bottom-line of all of this stuff is, as you can see from the numbers, the growth has been pretty dramatic. But most importantly, the cash conversion rate is one of the things I particularly like -- the cash conversion rate on NDS, to give you an idea, is 80% this year, 80%.

Got it. That's very good color. Thanks for that. Just a follow-up on the international rig tenders. I think you said 37 tenders in MENA, another four to five--

37 tenders for 37 rigs.

Got it. 37 tenders for 37 rigs.

No. Not 37 tenders. No. No. No. [indiscernible] 37 rigs. Yes.

Yes. Got it. So, the question is how many of those tenders and the success of those tenders are embedded, would you say, in the $1 billion plus guidance for 2023 and then the free cash flow guidance as well? Are those --like is it an incremental 37 rigs to what you're running now potentially? And then with that, there'd be some activation cost presumably and some cash component to that? Or maybe if you could just help us think through that a little bit more as well?

That's a great question. In reality, what we have embedded is some growth that is already achieved, as Tony mentioned. So, that includes Saudi Arabia, the standard newbuilds plus a couple of other rigs that we've added in other places. So, that's already embedded. Those things are embedded. What is not embedded is any potential success on these tenders. And again, we're not handicapping anything. But in these types of businesses or these types of markets, the client tends to help significantly with the upgrade and recertification and mobilization costs. So we don't think that the impact on our cash flow on negative basis for reactivating these rigs should be significant.

Got it. Thanks very much. That’s it from me.

[Operator Instructions] Our next question will come from Waqar Syed with ATB Capital Markets. Please go ahead.

Thank you for taking my question. I have a question on SANAD. In terms of total capital spending, I understand $180 million is going to be for newbuilds. What's the total capital spend in SANAD for 2023?

That's a great question. About $260 million. Saudi Arabia. That is for Saudi Arabia. A little bit of that will be incurred by Nabors itself. But yes, that's the Saudi Arabian CapEx, including those newbuilds.

Okay. And then would it be fair to say that your guidance of $400 million plus free cash flow in 2023, all of that free cash flow will be generated outside of SANAD?

Well, actually, SANAD will consume cash. So, the cash generation outside -- yes, of course, because they're building what? $180 million or $260 million total of CapEx or $240 million or so, I guess, is the internal for SANAD. It's more than the generation for SANAD from one year. However, outside SANAD, that cash consumption, which we think is going to be somewhere in the maybe $40 million range, is included in our consolidated number. That implies that the $400 million that I mentioned -- or more than $400 million that I mentioned is going to -- the piece that's outside of SANAD is going to be higher by about $40 million, $50 million.

Okay, fair enough. Yes, what I was trying to understand is in third quarter, the cash on the balance sheet at SANAD was about $300 million. So, a substantial part of your $450 million kind of cash on the balance sheet was in SANAD. But given most of the free cash flow is going to be outside of SANAD next -- in 2023, your--

All of it and more. All of it and more.

Yes. All of it and more. Yes, absolutely. So, your ability to pay down debt and on other good stuff that you can do, your flexibility improves considerably in 2023.

That's correct. That's exactly right. You said it better than me, actually. The only thing I'd add to that is that as we get to steady state on the newbuilds with Saudi Arabia at the five cadence, there will be a point where that becomes self-sustaining as well because the cash from the rigs that are built online then start to underwrite the newbuilds and actually become accretive as well on a cash-on-cash basis. And that crossover point will come within two years or six -- something like less than that, maybe sooner.

Yes, great. Looks like there are good days ahead. And -- so best of luck. Thank you very much for your answers.

Thank you, Waqar.

[Operator Instructions] And with no remaining questions, this will conclude our question-and-answer session. I would like to turn the conference back over to William Conroy for closing remarks.

Thank you all for joining us this afternoon. If you have any additional questions or want to follow-up, please contact us. Joe, we'll end the call there. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.